<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>7
<FILENAME>capital10kex13033102.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS
<TEXT>

EXHIBIT 13

                   Twelve Largest Investments - March 31, 2002
================================================================================

Palm Harbor Homes, Inc.                                    $109,971,000
--------------------------------------------------------------------------------

     Palm Harbor Homes,  Dallas,  Texas, is an integrated  manufactured  housing
company, building, retailing, financing and insuring homes produced in 15 plants
in Alabama,  Arizona,  Florida,  Georgia, North Carolina, Ohio, Oregon and Texas
and  sold  in 28  states  by  approximately  100  independent  dealers  and  151
company-owned  retail  superstores.   Palm  Harbor  manufactures   high-quality,
energy-efficient  homes  designed  to meet  the  need  for  affordable  housing,
particularly among retirees and newly-formed families.

     During the year ended March 29, 2002, Palm Harbor earned $19,448,000 ($0.85
per share) on net sales of  $627,380,000,  compared with earnings of $19,829,000
($0.87 per share) on net sales of  $650,451,000  in the previous year. The March
28, 2002 closing  Nasdaq bid price of Palm Harbor's  common stock was $20.80 per
share.

     At March 31, 2002,  the  $10,931,955  investment  in Palm Harbor by Capital
Southwest  and its  subsidiary  was valued at  $109,971,000  ($14.00 per share),
consisting  of  7,855,121  restricted  shares of common  stock,  representing  a
fully-diluted equity interest of 34.3%.

================================================================================

The RectorSeal Corporation                                  $50,000,000
--------------------------------------------------------------------------------

     The RectorSeal Corporation,  Houston, Texas, with two plants in Texas and a
plant in New York,  manufactures  chemical  specialty  products  including  pipe
thread  sealants,   firestop   sealants,   plastic  solvent  cements  and  other
formulations  for  plumbing  and  industrial  applications.  RectorSeal's  major
subsidiary,  Jet-Lube,  Inc., with plants in Texas, England and Canada, produces
anti-seize compounds, specialty lubricants and other products used in industrial
and oil field  applications.  Another  subsidiary,  Cargo  Chemical,  produces a
limited line of automotive chemical products.  RectorSeal also owns a 20% equity
interest in The Whitmore Manufacturing Company (described subsequently).

     During the year ended  March 31,  2002,  RectorSeal  earned  $5,277,000  on
revenues of  $57,338,000,  compared  with  earnings of $5,669,000 on revenues of
$56,240,000 in the previous year.  RectorSeal's  earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

     At March 31, 2002,  Capital  Southwest  owned 100% of  RectorSeal's  common
stock having a cost of $52,600 and a value of $50,000,000.

================================================================================

Skylawn Corporation                                         $38,000,000
--------------------------------------------------------------------------------

     Skylawn  Corporation,  Hayward,  California,  owns and operates cemeteries,
mausoleums and mortuaries. Skylawn's operations, all of which are in California,
include a mausoleum  and an adjacent  mortuary  in Oakland  and  cemeteries  and
mausoleums in San Mateo, Hayward, Sacramento and Napa, the latter three of which
also have  mortuaries  at the  cemetery  sites.  These  entities  have  provided
cemetery and funeral services to their respective  communities for many years. A
captive  insurance  company and funeral and  cemetery  trusts  enable  Skylawn's
clients to make pre-need arrangements.

     For the fiscal year ended March 31,  2002,  Skylawn  earned  $3,772,000  on
revenues of  $26,928,000,  compared  with  earnings of $4,120,000 on revenues of
$25,799,000 in the previous year.

     At March 31, 2002,  Capital  Southwest owned 100% of Skylawn  Corporation's
common stock, which had a cost of $4,510,400 and was valued at $38,000,000.

================================================================================

Alamo Group Inc.                                            $31,034,000
--------------------------------------------------------------------------------

     Alamo Group Inc.,  Seguin,  Texas, is a leading designer,  manufacturer and
distributor  of  heavy-duty,   tractor-mounted   mowing  and  other   vegetation
maintenance equipment,  street-sweeping equipment and replacement parts. Founded
in  1969,   Alamo  Group  operates  13   manufacturing   facilities  and  serves
governmental,  industrial  and  agricultural  markets  in the U.S.,  Canada  and
Europe.

     For the year ended December 31, 2001, Alamo reported  consolidated earnings
of  $10,812,000  ($1.11 per share) on net sales of  $246,047,000,  compared with
earnings of $10,770,000  ($1.11 per share) on net sales of  $215,874,000  in the
previous  year.  The March 28, 2002 closing NYSE market price of Alamo's  common
stock was $16.25 per share.

     At March 31, 2002, the $2,065,047  investment in Alamo by Capital Southwest
and its subsidiary was valued at $31,034,000  ($11.00 per share),  consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.2%.

<PAGE>

================================================================================

Encore Wire Corporation                                     $24,521,000
--------------------------------------------------------------------------------

     Encore Wire  Corporation,  McKinney,  Texas,  manufactures  a broad line of
copper  electrical  wire  and  cable  including   non-metallic  sheathed  cable,
underground  feeder  cable  and  THHN  cable  for  residential,  commercial  and
industrial  construction.   Encore's  products  are  sold  through  large-volume
distributors and building materials retailers.

     For the year  ended  December  31,  2001,  Encore  reported  net  income of
$9,130,000  ($0.60 per share) on net sales of  $281,010,000,  compared  with net
income of  $8,050,000  ($0.52  per  share) on net sales of  $283,689,000  in the
previous year.  The March 28, 2002 closing  Nasdaq bid price of Encore's  common
stock was $16.56 per share.

     At March  31,  2002,  the  $5,800,000  investment  in  2,724,500  shares of
Encore's  restricted  common stock by Capital  Southwest and its  subsidiary was
valued at $24,521,000  ($9.00 per share),  representing a  fully-diluted  equity
interest of 16.9%.

================================================================================
Media Recovery, Inc.                                        $10,000,000
--------------------------------------------------------------------------------

     Media  Recovery,  Inc.,  Graham,  Texas,  distributes  computer  and office
automation  supplies and accessories to corporate  customers  through its direct
sales force with 25 offices in 18 states. Its Shockwatch  division  manufactures
impact and tilt monitoring  devices used to detect mishandled  shipments.  Media
Recovery's  subsidiary,   The  Damage  Prevention  Company,   Denver,  Colorado,
manufactures  dunnage  products  used to prevent  damage in  trucking,  rail and
export container shipments.

     During the year ended  September  30,  2001,  Media  Recovery  reported net
income of $3,007,000 on net sales of  $110,840,000,  compared with net income of
$3,139,000 on net sales of $94,373,000 in the previous year.

     At March 31, 2002, the  $5,415,000  investment in Media Recovery by Capital
Southwest and its subsidiary was valued at $10,000,000,  consisting of 4,800,000
shares of Series A convertible  preferred  stock,  representing a  fully-diluted
equity interest of 71.2%.

================================================================================

The Whitmore Manufacturing Company                           $8,800,000
--------------------------------------------------------------------------------

     The Whitmore  Manufacturing  Company,  with plants in  Rockwall,  Texas and
Cleveland,  Ohio,  manufactures specialty lubricants for heavy equipment used in
surface  mining,  railroads  and  other  industries,  and  produces  water-based
coatings  for  the  automotive  and  primary   metals   industries.   Whitmore's
subsidiary,  Fluid  Protection  Corporation,  manufactures  fluid  contamination
control devices.

     During the year  ended  March 31,  2002,  Whitmore  reported  net income of
$88,000 on net sales of $12,151,000,  compared with net income of $41,000 on net
sales of  $11,536,000  in the previous year. The company is owned 80% by Capital
Southwest and 20% by Capital Southwest's subsidiary,  The RectorSeal Corporation
(described on page 7).

     At March 31, 2002, the direct  investment in Whitmore by Capital  Southwest
was valued at $8,800,000 and had a cost of $1,600,000.

================================================================================

All Components, Inc.                                         $8,700,000
--------------------------------------------------------------------------------

     All  Components,  Inc.,  Farmers  Branch,  Texas,  distributes and produces
memory and other components for personal computer  manufacturers,  retailers and
value-added  resellers.  Through its Dallas-based sales and distribution  center
and its contract  manufacturing  plants in Austin,  Texas and Boise,  Idaho, the
company serves over 2,000 customers throughout the United States.

     During the year ended August 31, 2001, All  Components  reported net income
of  $5,220,000  on net  sales  of  $152,022,000,  compared  with net  income  of
$4,025,000 on net sales of $220,835,000 in the previous year.

     At March 31, 2002,  the $150,000  investment  in All  Components by Capital
Southwest's  subsidiary was valued at $8,700,000 consisting of 150,000 shares of
Series A convertible preferred stock,  representing a 29.0% fully-diluted equity
interest.

<PAGE>

================================================================================

Liberty Media Corporation                                    $8,562,488
--------------------------------------------------------------------------------

     Liberty Media Corporation, Englewood, Colorado, acquired by AT&T as part of
Tele-Communications,  Inc.  in 1999 and now an  independent  company,  produces,
acquires and distributes  entertainment,  sports and  informational  programming
services  and  electronic  retailing  services,  which are  delivered  via cable
television and other technologies to viewers in the United States and overseas.

     For the year ended December 31, 2001,  Liberty Media reported a net loss of
$6.203 billion ($2.40 per share) on net sales of $2.059  billion,  compared with
net income of $1.485 billion ($0.57 per share) on net sales of $1.526 billion in
the  previous  year.  The March 28, 2002  closing  NYSE market price of Series A
common stock was $12.64 per share.

     At March 31, 2002, Capital Southwest owned 677,412  unrestricted  shares of
Series  A  common  stock,  having  a total  cost of $25 and a  market  value  of
$8,562,488 ($12.64 per share).
================================================================================

PETsMART, Inc.                                               $7,515,223
--------------------------------------------------------------------------------

     PETsMART,  Inc.,  Phoenix,  Arizona,  is the largest specialty  retailer of
services and solutions for the lifetime needs of pets. The company operates more
than 500 pet  superstores  in the United  States  and Canada and is the  leading
direct marketer of pet products and  information  through it e-commerce site and
its pet and equine catalog business.

     For the year ended February 3, 2002, PETsMART,  Inc. reported net income of
$39,567,000  ($0.35 per share) on net sales of $2.501  billion,  compared with a
net loss of $30,904,000  ($0.28 per share) on net sales of $2.224 billion in the
previous year. The March 28,2002  closing Nasdaq bid price of PETsMART's  common
stock was $13.56 per share.

     At March 31, 2002,  Capital  Southwest  and its  subsidiary  owned  554,220
unrestricted  shares of common stock,  having a cost of $2,437,129  and a market
value of $7,515,223 ($13.56 per share).

================================================================================

Mail-Well, Inc.                                              $6,814,000
--------------------------------------------------------------------------------

     Mail-Well,  Inc.,  Englewood,  Colorado,  is the  leading  manufacturer  of
envelopes  in the United  States and Canada and one of North  America's  largest
commercial printers.  Upon completion of planned divestitures,  the company will
operate 77 facilities serving over 20,000 customers of its envelope and printing
businesses.

     For the year ended  December  31,  2001,  Mail-Well  reported a net loss of
$136,217,000 ($2.86 per share) on net sales of $1.653 billion, compared with net
income of  $27,618,000  ($0.56 per share) on net sales of $1.824  billion in the
previous  year.  The March 28, 2002  closing  NYSE market  price of  Mail-Well's
common stock was $6.28 per share.

     At March 31,  2002,  the  $2,986,870  investment  in  Mail-Well  by Capital
Southwest  was valued at $6,814,000  ($3.25 per share),  consisting of 2,096,588
restricted shares of common stock,  representing a fully-diluted equity interest
of 3.4%.

================================================================================
Concert Industries Ltd.                                      $5,922,000
--------------------------------------------------------------------------------

     Concert Industries Ltd., Vancouver, British Columbia, manufactures air-laid
super-absorbent   materials  in  facilities  in  Thurso  and  Gatineau   Quebec;
Falkenhagen,  Germany; and Charleston, South Carolina. Its non-woven fabrics are
used in feminine  hygiene,  specialty diapers and adult  incontinence  products.
Other  applications are industrial wipes, food packaging and disposable  medical
products.

     During the year ended December 31, 2001, Concert lost C$16,560,000  (C$0.64
per  share)  on  net  sales  of  C$109,895,000,  compared  with  net  income  of
C$7,375,000  (C$0.31 per share) on net sales of  C$86,606,000  in the year 2000.
The March 28, 2002  closing  Toronto  Stock  Exchange  market price of Concert's
common stock was C$5.55 (US$3.49) per share.

     At March 31, 2002, the US$9,367,649 investment by Capital Southwest and its
subsidiary  in  2,833,485  shares of  restricted  common  stock and  warrants to
acquire 457,401 shares of common stock was valued at US$5,922,000,  representing
a fully-diluted equity interest of 8.4%.

<PAGE>
<TABLE>
<CAPTION>

                    Portfolio of Investments - March 31, 2002


                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>       <C>                                 <C>              <C>
+AT&T CORP.                                              <1%       ++133,245 shares common
   New York, New York                                                stock (acquired 3-9-99)           $        33      $  2,091,947
   Major provider of voice, data and
   video communications services
   including business and consumer
   long distance and broadband (cable).
------------------------------------------------------------------------------------------------------------------------------------

+AT&T WIRELESS SERVICES, INC.                            <1%       ++42,878 shares common stock
   Redmond, Washington                                               (acquired 7-9-01)                          10           383,758
   Provider of wireless voice and data
   services and products in the cellular
   and PCS markets.
------------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                                      27.2%       2,821,300 shares common stock
   Seguin, Texas                                                     (acquired 4-1-73 thru 10-4-99)      2,065,047        31,034,000
   Tractor-mounted mowing and vegetation
   maintenance equipment for governmental,
   industrial and agricultural markets;
   street-sweeping equipment for municipalities.
------------------------------------------------------------------------------------------------------------------------------------

ALL COMPONENTS, INC.                                   29.0%       150,000 shares Series A convertible
   Farmers Branch, Texas                                             preferred stock,convertible into
   Distribution and production of memory and                         600,000  shares of common  stock
   other components for personal computer                            at  $0.25 per share
   manufacturers, retailers and value-added                          (acquired 9-16-94)                    150,000         8,700,000
   resellers.
------------------------------------------------------------------------------------------------------------------------------------

+ALLTEL CORPORATION                                     <1%        ++8,880 shares common stock
   Little Rock, Arkansas                                             (acquired 7-1-98)                     108,355           493,284
   Wireline and wireless communications and
   information services.
------------------------------------------------------------------------------------------------------------------------------------

BALCO, INC.                                           89.7%        14% subordinated debentures,
   Wichita, Kansas                                                   payable 2002 (acquired 8-13-91)        80,000            80,000
   Specialty architectural products                                14% subordinated debenture,
   used in  the construction and remodeling                          payable 2002, last maturing
   of commercial and institutional buildings.                        $160,000 convertible into 160,000
                                                                     shares of common stock at $1.00
                                                                     per share (acquired 6-1-91)           160,000           949,000
                                                                   285,000 shares common stock
                                                                     and 60,920 shares Class B
                                                                     non-voting common stock
                                                                     (acquired  10-25-83  and
                                                                     5-30-01)                              464,920         2,051,000
                                                                                                         ---------         ---------
                                                                                                           704,920         3,080,000
------------------------------------------------------------------------------------------------------------------------------------

BOXX TECHNOLOGIES, INC.                               16.8%        3,125,354 shares Series B
   Austin, Texas                                                     convertible preferred stock,
   Workstations for computer graphics                                convertible into 3,125,354          1,500,000                 2
   imaging and design.                                               shares of common stock at
                                                                     $0.50 per share (acquired
                                                                     8-20-99 thru 8-8-01)
                                                                   Warrants to purchase 80,000
                                                                     shares of Series B preferred
                                                                     stock at $0.50 per share,                --                --
                                                                     expiring 2005 (acquired  8-24-00)   ---------         ---------
                                                                                                          1,500,000                2
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>


                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
                                                       1,500,000         2
------------------------------------------------------------------------------------------------------------------------------------
+CONCERT INDUSTRIES LTD.                               8.4%        2,833,485 shares common stock
   Vancouver, British Columbia                                       (acquired 5-31-00 thru 6-1-01)    $ 9,131,224      $  5,922,000
   Manufacture and sale of latex,                                  Warrant to purchase 83,643 shares
   thermal and multi-bonded                                          of common stock at C$6.00
   air-laid nonwoven fabrics                                         (US$3.769) per share, expiring
   having superabsorbent properties.                                 2002 (acquired 5-31-00)                47,525              --
                                                                   Warrants to purchase 373,758
                                                                     shares of common stock at
                                                                     C$8.00 (US$5.025) per share,
                                                                     expiring 2003 (acquired 6-1-01)       188,900              --
                                                                                                         ---------         ---------
                                                                                                         9,367,649         5,922,000
------------------------------------------------------------------------------------------------------------------------------------

DENNIS TOOL COMPANY                                   66.2%        20,725 shares 5% convertible preferred
   Houston, Texas                                                    stock, convertible into 20,725 shares
   Polycrystalline diamond compacts                                  of common stock at $48.25 per share
   (PDCs) used in oil field drill                                    (acquired 8-10-98)                    999,981           500,000
   bits and in mining and industrial                               140,137  shares  common  stock
   applications.                                                     (acquired 3-7-94 and 8-10-98)       2,329,963         1,500,000
                                                                                                         ---------         ---------

                                                                                                         3,329,944         2,000,000
------------------------------------------------------------------------------------------------------------------------------------

+DREW SCIENTIFIC GROUP PLC                              <1%        ++49,925 shares common stock
   Cumbria, England                                                 (acquired 3-21-01)                     182,689            12,446
   Diagnostic medical equipment and consumables.
------------------------------------------------------------------------------------------------------------------------------------

+ENCORE WIRE CORPORATION                              16.9%        2,724,500 shares common stock
   McKinney, Texas                                                   (acquired 7-16-92 thru 10-7-98)     5,800,000        24,521,000
   Electrical wire and cable for residential
   and commercial use.
------------------------------------------------------------------------------------------------------------------------------------

EXOPACK HOLDING CORP.                                  1.3%          4,500 shares common stock
   Paper and plastic flexible packaging for products                   (acquired 7-27-01)                  450,000           450,000
   Spartanburg, South Carolina
   such as pet food, building  materials, chemicals
   and other commodities.
------------------------------------------------------------------------------------------------------------------------------------

EXTREME INTERNATIONAL, INC.                           41.3%        12% subordinated notes,
   (formerly Rewind Holdings, Inc.)                                  payable 2001 to 2004                4,176,750         1,000,000
   Sugar Land, Texas                                                 (acquired 10-21-96 thru 4-30-01)
   Owns  Bill  Young  Productions, Texas                           375 shares 8% Series A convertible
   Video  and  Post, and  Extreme Communications,                    preferred  stock, convertible into
   which produce radio and television                                1,500,000 shares of common stock at
   commercials and corporate communications videos.                  $0.25 per share (acquired 10-21-96)   375,000              --
                                                                   Warrants to purchase  1,056,000 shares
                                                                     of common stock at $0.25 per share,
                                                                     expiring 2005 and 2008 (acquired
                                                                     8-11-98 thru 4-30-01)                    --                --
                                                                                                         ---------         ---------
                                                                                                         4,551,750         1,000,000
------------------------------------------------------------------------------------------------------------------------------------

+FMC CORPORATION                                        <1%        ++6,430 shares common stock
   Chicago, Illinois                                                 (acquired 6-6-86)                      66,726           269,545
   Chemicals for agricultural, industrial
   and consumer markets.
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                 ++Unrestricted securities as defined in Note (b)

<PAGE>


                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
------------------------------------------------------------------------------------------------------------------------------------

+FMC TECHNOLOGIES, INC.                                 <1%        ++11,057 shares common stock
   Chicago, Illinois                                                 (acquired 1-2-02)                 $    57,051      $    220,366
   Technology solutions for the energy,
   food processing and air transportation
   industries.
------------------------------------------------------------------------------------------------------------------------------------

HEELING, INC.                                         43.0%        10% subordinated debenture due 2006
   Carrollton, Texas                                                 (acquired 10-30-00 thru 12-7-00)    1,800,000         1,800,000
   Heelys stealth skate shoes ("one wheel in                       1,745,455 shares Series A preferred
   the heel") sold through specialty skate,                          stock (acquired 5-26-00)              480,000           480,000
   lifestyle  and sporting goods stores,                           436,364 shares Series B convertible
   footwear chains and over the Internet                             preferred stock, convertible into
   at Heelys.com.                                                    436,364 shares of common stock at
                                                                     $0.275 per share (acquired 5-26-00)   120,000           120,000
                                                                                                         ---------         ---------
                                                                                                          2,400,000        2,400,000
------------------------------------------------------------------------------------------------------------------------------------

+HOLOGIC, INC.                                          <1%        ++158,205 shares common stock
   Bedford, Massachusetts                                            (acquired 8-27-99)                    220,000         2,444,267
   Medical instruments including bone
   densitometers, mammography devices
   and digital radiography systems.
------------------------------------------------------------------------------------------------------------------------------------

+KIMBERLY-CLARK CORPORATION                             <1%        ++77,180 shares common stock
   Dallas, Texas                                                     (acquired 12-18-97)                 2,396,926         4,989,687
   Manufacturer of tissue, personal care
   and health care products.
------------------------------------------------------------------------------------------------------------------------------------

+LIBERTY MEDIA CORPORATION                              <1%        ++677,412 shares Series A common
   (formerly AT&T Corp. - Liberty Media Group)                       stock (acquired 3-9-99)                    25         8,562,488
   Englewood, Colorado
   Global media and entertainment company owning
   interests in video programming,
   communications and Internet businesses.
------------------------------------------------------------------------------------------------------------------------------------

+MAIL-WELL, INC.                                       3.4%        2,096,588 shares common stock
   Englewood, Colorado                                               (acquired 2-18-94 thru 11-10-98)    2,986,870         6,814,000
   Envelopes and commercial printing.
------------------------------------------------------------------------------------------------------------------------------------

MEDIA RECOVERY, INC.                                  71.2%        4,800,000 shares Series A convertible
   Graham, Texas                                                     preferred stock, convertible into
   Computer and office automation supplies                           4,800,000 shares of common stock at
   and accessories;impact and tilt monitoring                        $1.00 per share (acquired 11-4-97)  5,415,000        10,000,000
   devices to detect mishandled
   shipments; dunnage for protecting shipments.
------------------------------------------------------------------------------------------------------------------------------------

+MYLAN LABORATORIES, INC.                               <1%        ++64,143 shares common stock
   Pittsburgh, Pennsylvania                                          (acquired 11-20-91)                   200,000         1,889,653
   Proprietary and generic pharmaceutical products.
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>


                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
------------------------------------------------------------------------------------------------------------------------------------

ORGANIZED LIVING, INC.                                 8.2%        3,333,335 shares Series D
   Lenexa, Kansas                                                    convertible preferred stock,
   Specialty retailer of products designed                           convertible into 3,333,335
   to provide home and office storage and                            shares of common stock at $1.80
   organization solutions.                                           per share (acquired 1-7-00
                                                                     and 10-30-00)                     $ 6,000,000      $  3,000,000
------------------------------------------------------------------------------------------------------------------------------------

PALLET ONE, INC.                                       8.8%        150,000 shares common stock
   Bartow, Florida                                                   (acquired 10-18-01)                   150,000           150,000
   Wooden pallet manufacturer with 12                              1,350,000 shares Series A
   manufacturing  facilities.                                        preferred stock (acquired
                                                                     10-18-01)                           1,350,000         1,350,000
                                                                                                         ---------         ---------
                                                                                                         1,500,000         1,500,000
------------------------------------------------------------------------------------------------------------------------------------

+PALM HARBOR HOMES, INC.                              34.3%        7,855,121 shares common stock
   Dallas, Texas                                                     (acquired 1-3-85 thru 7-31-95)     10,931,955       109,971,000
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing produced in 15 plants.
------------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                         <1%        ++554,220 shares common stock
   Phoenix, Arizona                                                  (acquired 6-1-95)                   2,437,129         7,515,223
   Retail chain of more than 500 stores selling
   pet foods, supplies and services.
------------------------------------------------------------------------------------------------------------------------------------

THE RECTORSEAL CORPORATION                           100.0%        27,907 shares common stock
   Houston, Texas                                                    (acquired 1-5-73 and 3-31-73)          52,600        50,000,000
   Chemical specialty products for industrial,
   construction, oil field and automotive
   applications; owns 20% of Whitmore
   Manufacturing.

------------------------------------------------------------------------------------------------------------------------------------
SKYLAWN CORPORATION                                  100.0%        1,449,026 shares common stock
   Hayward, California                                               (acquired 7-16-69)                  4,510,400        38,000,000
   Cemeteries, mausoleums and mortuaries
   located in northern California.

------------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - FON Group                         <1%        ++72,000  shares common stock
   Westwood, Kansas                                                  (acquired 6-20-84)                    449,654         1,100,880
   Diversified telecommunications company.

------------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - PCS Group                         <1%        ++36,000 shares common stock
   Overland Park, Kansas                                             (acquired 11-23-98)                    53,991           370,440
   Domestic wireless telephony services.

------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>


                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
------------------------------------------------------------------------------------------------------------------------------------

SPROCKETS.COM, INC.                                    1.2%        31,196 shares common stock
   Boston, Massachusetts                                             (acquired 6-29-01)                $ 1,244,883      $          1
   Provides web-based file transfer
   and collaboration platforms to                                  168,403 shares Series B
    acilitate the creation of visual                                 redeemable convertible
   media from multiple locations.                                    preferred  stock,
                                                                     convertible into 168,403
                                                                     shares of common stock at $0.30        49,488              --
                                                                     per share (acquired 6-29-01)
                                                                   Warrants to purchase 4,693 shares of
                                                                     common stock at $41.04 per share
                                                                     expiring 2006 (acquired 6-29-01)        5,629              --
                                                                                                         ---------         ---------
                                                                                                         1,300,000                 1
------------------------------------------------------------------------------------------------------------------------------------

TCI  HOLDINGS, INC.                                      --        21 shares 12% Series C cumulative
   Denver, Colorado                                                  compounding preferred stock
   Cable television systems and                                      (acquired 1-30-90)                       --             677,250
   microwave relay systems.
------------------------------------------------------------------------------------------------------------------------------------

TEXAS CAPITAL BANCSHARES, INC.                         3.0%        344,828 shares common stock
   Dallas, Texas                                                     (acquired 5-1-00)                   5,000,006         5,000,006
   Owns both Texas Capital Bank, NA, which
   serves middle market clients, and
   Bank Direct, an Internet bank.
------------------------------------------------------------------------------------------------------------------------------------

TEXAS PETROCHEMICAL HOLDINGS, INC.                     5.0%        30,000 shares common stock
   Houston, Texas                                                    (acquired 6-27-96)                  3,000,000                 1
   Butadiene for synthetic rubber, MTBE for
   gasoline octane enhancement and
   butylenes for varied applications.
------------------------------------------------------------------------------------------------------------------------------------

TEXAS SHREDDER, INC.                                  53.3%        3,296 shares Series A preferred stock
   San Antonio, Texas                                                (acquired 3-6-91 and 6-1-98)          329,600           329,600
   Design and manufacture of heavy-duty                            750 shares Series B convertible
   shredder systems for recycling                                    preferred  stock, convertible
   steel and other materials                                         into 750,000 shares of common
   from junk automobiles.                                            stock at $0.10 per share
                                                                     (acquired 3-6-91)                      75,000         2,587,500
                                                                                                         ---------         ---------
                                                                                                           404,600         2,917,100
------------------------------------------------------------------------------------------------------------------------------------

VOCALDATA, INC.                                        2.8%        650,001 shares Series A convertible
   Richardson, Texas                                                 preferred stock, convertible into
   Hardware and software for customer                                1,300,002  shares of  common
   premises telephony equipment based on                             stock at $0.875 per share
   Voice Over Internet Protocol.                                     (acquired 11-4-99 and 12-3-99)      1,137,500                 1
                                                                   200,287 shares Series B convertible
                                                                     preferred convertible stock, into
                                                                     200,287  shares of common stock at
                                                                     $1.759 per share
                                                                     (acquired 10-26-00)                   352,305                 1
                                                                                                         ---------         ---------
                                                                                                         1,489,805                 2
------------------------------------------------------------------------------------------------------------------------------------

THE WHITMORE MANUFACTURING COMPANY                    80.0%        80 shares common stock
   Rockwall, Texas                                                   (acquired 8-31-79)                  1,600,000         8,800,000
   Specialized mining and industrial lubricants;
   automotive transit coatings.
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)


<PAGE>

                   Company                            Equity (a)         Investment (b)                    Cost        Value (c)
------------------------------------------------------------------------------------------------------------------------------------

MISCELLANEOUS                                           --         Diamond State Ventures, L.P.
                                                                     - 1.9% limited partnership
                                                                     interest (acquired 10-12-99
                                                                     thru 8-15-01)                     $   165,625      $    165,625
                                                        --         First  Capital Group of Texas III,
                                                                     L.P. - 3.3% limited partnership
                                                                     interest (acquired 12-26-00
                                                                     and 5-1-01)                           247,929           247,929
                                                     100.0%        Humac Company - 1,041,000 shares
                                                                     common stock (acquired 1-31-75
                                                                     and 12-31-75)                            --             140,000
                                                        --         STARTech Seed Fund I - 12.6% limited
                                                                     partnership
                                                                     interest (acquired 4-17-98
                                                                     thru 1-5-00)                          178,066           178,066
                                                        --         STARTech Seed Fund II - 3.1% limited
                                                                     partnership
                                                                     interest (acquired 4-28-00
                                                                     thru 3-5-02)                          600,000           300,000
                                                        --         Sterling Group Partners I, L.P. -
                                                                     1.7%  limited partnership
                                                                     interest (acquired 4-20-01
                                                                     and 7-27-01)                          319,100           319,100
------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                      $82,193,855      $347,481,066
                                                                                                      ===========      ============
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                                           ++Unrestricted securities as defined in Note (b)
</TABLE>

<PAGE>

                        Notes to Portfolio of Investments


(a)  The  percentages  in the  "Equity"  column  express  the  potential  equity
interests held by Capital  Southwest  Corporation and Capital  Southwest Venture
Corporation (together, the "Company") in each issuer. Each percentage represents
the amount of the  issuer's  common  stock the Company  owns or can acquire as a
percentage of the issuer's total outstanding common shares, plus shares reserved
for all outstanding warrants, convertible securities and employee stock options.
The symbol "<1%" indicates that the Company holds a potential equity interest of
less than one percent.

(b) Unrestricted  securities  (indicated by ++) are freely marketable securities
having readily available market quotations.  All other securities are restricted
securities  which are subject to one or more  restrictions on resale and are not
freely  marketable.   At  March  31,  2002,  restricted  securities  represented
approximately 91% of the value of the consolidated investment portfolio.

(c) Under the  valuation  policy of the  Company,  unrestricted  securities  are
valued at the closing sale price for listed  securities  and at the lower of the
closing bid price or the last sale price for Nasdaq  securities on the valuation
date. Restricted  securities,  including securities of publicly-owned  companies
which are  subject  to  restrictions  on  resale,  are  valued at fair  value as
determined by the Board of Directors.  Fair value is considered to be the amount
which the Company may reasonably  expect to receive for portfolio  securities if
such securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.

     Among the factors  considered by the Board of Directors in determining  the
fair value of restricted  securities  are the financial  condition and operating
results of the issuer, the long-term  potential of the business of the is- suer,
the market for and recent sales prices of the issuer's securities, the values of
similar securities issued by companies in similar businesses,  the proportion of
the issuer's securities owned by the Company,  the nature and duration of resale
restrictions  and the nature of any rights  enabling  the Company to require the
issuer to register  restricted  securities under applicable  securities laws. In
determining  the fair value of  restricted  securities,  the Board of  Directors
considers  the  inherent  value  of  such  securities   without  regard  to  the
restrictive  feature and  adjusts for any  diminution  in value  resulting  from
restrictions on resale.

(d) Agreements  between certain issuers and the Company provide that the issuers
will bear  substantially  all costs in connection with the disposition of common
stocks,  including those costs involved in registration under the Securities Act
of 1933 but excluding underwriting discounts and commissions.  These agreements,
which cover common stocks owned at March 31, 2002 and common stocks which may be
acquired  thereafter  through  exercise of warrants and conversion of debentures
and  preferred  stocks,  apply to  restricted  securities  of all issuers in the
investment  portfolio of the Company except securities of the following issuers,
which are not  obligated to bear  registration  costs:  Humac  Company,  Skylawn
Corporation and The Whitmore Manufacturing Company.

(e) The  descriptions  of the companies and ownership  percentages  shown in the
portfolio of investments were obtained from published  reports and other sources
believed to be reliable,  are  supplemental and are not covered by the report of
independent  auditors.  Acquisition  dates  indicated  are  the  dates  specific
securities  were acquired.  Certain  securities were received in exchange for or
upon conversion or exercise of other securities previously acquired.

<PAGE>

                        Portfolio Changes During the Year

New Investments and Additions to Previous Investments


                                                            Amount
                                                         ----------
Balco, Inc. .........................................    $  204,000
BOXX Technologies, Inc. ..............................      500,000
Diamond State Ventures, L.P. .........................       46,429
Exopack Holding Corp. ................................      450,000
Extreme International, Inc. ..........................      228,000
First Capital Group of Texas III, L.P. ...............      147,929
PalletOne, Inc. ......................................    1,500,000
STARTech Seed Fund II ................................      150,000
Sterling Group Partners I ............................      319,100
                                                         ----------
                                                         $3,545,458
                                                         ==========

Dispositions

                                     Amount
                                                            Cost       Received
                                                         ----------   ----------
Cisco Systems, Inc. ..................................   $  321,934   $  325,989
CyberSource Corporation ..............................    1,000,000      186,883
Drew Scientific Group PLC ............................    2,956,472      149,941
Global Crossing Ltd. .................................       78,346       96,637
Liberty Satellite & Technology, Inc. .................         --         28,355
Mylan Laboratories, Inc. .............................      200,000    2,352,594
PETsMART, Inc. .......................................      441,604    1,351,080
Photon Dynamics, Inc. (formerly Intelligent
  Reasoning Systems, Inc.) ...........................    1,542,756    1,146,167
Triton Energy Limited ................................      144,167      270,990
Miscellaneous ........................................         --         14,529
                                                         ----------   ----------

                                                         $6,685,279   $5,923,165
                                                         ==========   ==========


Repayments Received ..................................                $2,267,970
                                                                      ==========



Significant Non-Cash Transaction

     On June 1, 2001, the Company exchanged  US$8,471,623 principal amount of 8%
subordinated  debentures  of Concert  Industries  Ltd. for  2,046,199  shares of
common  stock at US$4.14  (C$6.36)  per share and  373,758  warrants to purchase
common stock at C$8.00 (US$5.025) per share, expiring 12-31-03.


<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                 Consolidated Statements of Financial Condition



                                                                    March 31
                                                          ------------------------------
Assets                                                         2002             2001
                                                          -------------    -------------
<S>                                                       <C>              <C>
Investments at market or fair value
(Notes 1, 2 and 10)
   Companies more than 25% owned
     (Cost: 2002 - $23,194,865,
     2001 - $23,140,865) ..............................   $ 243,024,999    $ 205,273,759
   Companies 5% to 25% owned
     (Cost: 2002 - $27,167,649,
     2001 - $17,642,756) ..............................      34,943,003       19,623,004
   Companies less than 5% owned
     (Cost: 2002 - $31,831,341,
     2001 - $46,818,025) ..............................      69,513,064       91,020,746
                                                          -------------    -------------

Total investments
     (Cost: 2002 - $82,193,855,
     2001 - $87,601,646) ..............................     347,481,066      315,917,509
Cash and cash equivalents .............................       1,977,180        1,137,767
Receivables ...........................................       1,753,297          264,377
Other assets (Note 8) .................................       5,971,361        5,348,315
                                                          -------------    -------------


Totals ................................................   $ 357,182,904    $ 322,667,968
                                                          =============    =============


                                                                    March 31
                                                          ------------------------------
Liabilities and Shareholders' Equity                           2002             2001
                                                          -------------    -------------

Note payable to bank (Note 4) .............               $   6,500,000   $    5,000,000
Notes payable to portfolio companies (Note 4) .........       2,500,000        6,000,000
Accrued interest and other liabilities (Note 8) .......       2,018,140        2,135,052
Deferred income taxes (Note 3) ........................      90,673,722       77,924,303
Subordinated debenture (Note 5) .......................       5,000,000        5,000,000
                                                          -------------    -------------
                    Total liabilities .................     106,691,862       96,059,355
                                                          -------------    -------------

Shareholders' equity (Notes 3 and 6)
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,266,416
     shares at March 31, 2002 and 4,252,416
       shares at March 31, 2001 .......................       4,266,416        4,252,416
   Additional capital .................................       6,935,497        6,450,747
   Undistributed net investment
     income ...........................................       3,297,838        3,550,573
   Undistributed net realized gain on
     investments ......................................      69,844,380       70,382,314
   Unrealized appreciation of investments -
     net of deferred income taxes .....................     173,180,213      149,005,865
   Treasury stock - at cost
     (437,365 shares) .................................      (7,033,302)      (7,033,302)
                                                          -------------    -------------
   Net assets at market or fair value, equivalent
     to $65.42 per share on the 3,829,051
     shares outstanding at March 31, 2002,
     and $59.40 per share on the 3,815,051
     shares outstanding at March 31, 2001 ..........        250,491,042      226,608,613
                                                          -------------    -------------


   Totals .......................................         $ 357,182,904    $ 322,667,968
                                                          =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements

<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Operations

                                                                      Years Ended March 31
                                                         --------------------------------------------
                                                              2002            2001            2000
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>

Investment income (Note 9):
   Interest ..........................................   $    322,521    $    542,241    $    884,152
   Dividends .........................................      3,293,633       2,955,833       1,878,853
   Management and directors' fees ....................        530,400         530,400         525,400
                                                         ------------    ------------    ------------
                                                            4,146,554       4,028,474       3,288,405
                                                         ------------    ------------    ------------

Operating expenses:
   Salaries ..........................................        894,612         850,959         804,933
   Net pension benefit (Note 8) ......................       (504,536)       (486,174)       (435,984)
   Other operating expenses (Notes 7 and 11) .........        633,254         614,861         657,770
                                                         ------------    ------------    ------------
                                                            1,023,330         979,646       1,026,719
                                                         ------------    ------------    ------------
Income before interest expense and income taxes ......      3,123,224       3,048,828       2,261,686
Interest expense .....................................        929,372       1,144,337         456,262
                                                         ------------    ------------    ------------
Income before income taxes ...........................      2,193,852       1,904,491       1,805,424
Income tax expense (Note 3) ..........................        151,956         181,991         142,494
                                                         ------------    ------------    ------------
Net investment income ................................   $  2,041,896    $  1,722,500    $  1,662,930
                                                         ============    ============    ============

Proceeds from disposition of investments .............   $  5,923,165    $  7,657,377    $ 14,893,442
Cost of investments sold (Note 1) ....................      6,685,279      12,782,870       5,662,000
                                                         ------------    ------------    ------------
Realized gain (loss) on investments before
  income taxes (Note 9) ..............................       (762,114)     (5,125,493)      9,231,442
Income tax expense (benefit) .........................       (224,180)     (1,894,506)      3,211,550
                                                         ------------    ------------    ------------
Net realized gain (loss) on investments ..............       (537,934)     (3,230,987)      6,019,892
                                                         ------------    ------------    ------------
Increase (decrease) in unrealized appreciation of
  investments before income taxes ....................     36,971,348     (10,310,835)    (38,071,790)
Increase (decrease) in deferred income taxes on
  appreciation of investments (Note 3) ...............     12,797,000      (3,841,000)    (13,322,000)
                                                         ------------    ------------    ------------
Net increase (decrease) in unrealized appreciation
  of investments .....................................     24,174,348      (6,469,835)    (24,749,790)
                                                         ------------    ------------    ------------

Net realized and unrealized gain (loss) on investments   $ 23,636,414    $ (9,700,822)   $(18,729,898)
                                                         ============    ============    ============

Increase (decrease) in net assets from operations ....   $ 25,678,310    $ (7,978,322)   $(17,066,968)
                                                         ============    ============    ============
</TABLE>


                 See Notes to Consolidated Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                Consolidated Statements of Changes in Net Assets

                                                                                       Years Ended March 31
                                                                       -----------------------------------------------
                                                                             2002             2001             2000
                                                                       -------------    -------------    -------------
<S>                                                                    <C>              <C>                  <C>
Operations
   Net investment income ...........................................   $   2,041,896    $   1,722,500    $   1,662,930
   Net realized gain (loss) on investments .........................        (537,934)      (3,230,987)       6,019,892
   Net increase (decrease) in unrealized appreciation of investments      24,174,348       (6,469,835)     (24,749,790)
                                                                       -------------    -------------    -------------
   Increase (decrease) in net assets from operations ...............      25,678,310       (7,978,322)     (17,066,968)

Distributions from:
   Undistributed net investment income .............................      (2,294,631)      (2,289,031)      (2,289,031)

Capital share transactions
   Exercise of employee stock options ..............................         498,750             --               --
                                                                       -------------    -------------    -------------

    Increase (decrease) in net assets ..............................      23,882,429      (10,267,353)     (19,355,999)
Net assets, beginning of year ......................................     226,608,613      236,875,966      256,231,965
                                                                       -------------    -------------    -------------

Net assets, end of year ............................................   $ 250,491,042    $ 226,608,613    $ 236,875,966
                                                                       =============    =============    =============
</TABLE>


                 See Notes to Consolidated Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Cash Flows

                                                                                      Years Ended March 31
                                                                        --------------------------------------------
                                                                             2002            2001            2000
                                                                        ------------    ------------    ------------
<S>                                                                     <C>             <C>             <C>
Cash flows from operating activities
Increase (decrease) in net assets from operations ...................   $ 25,678,310    $ (7,978,322)   $(17,066,968)
Adjustments to reconcile increase (decrease) in net assets from
   operations to net cash provided by (used in) operating activities:
   Depreciation and amortization ....................................         26,258          29,891          31,976
   Net pension benefit ..............................................       (504,536)       (486,174)       (435,984)
   Net realized and unrealized (gain) loss on investments ...........    (23,636,414)      9,700,822      18,729,898
   (Increase) decrease in receivables ...............................     (1,488,920)        (25,783)         77,113
   Increase in other assets .........................................        (17,922)         (8,923)        (44,754)
   Increase (decrease) in accrued interest and other liabilities ....        (44,479)        (27,179)         41,504
   Decrease in accrued pension cost .................................       (199,280)       (209,947)           --
   Deferred income taxes ............................................        176,600         170,400         152,600
                                                                        ------------    ------------    ------------
Net cash provided by (used in) operating activities .................        (10,383)      1,164,785       1,485,385
                                                                        ------------    ------------    ------------
Cash flows from investing activities
Proceeds from disposition of investments ............................      5,923,165       7,657,377      14,893,442
Purchases of securities .............................................     (3,545,458)    (15,922,079)    (21,924,423)
Maturities of securities ............................................      2,267,970         540,000       4,840,000
Income taxes paid on realized gain on investments ...................           --              --        (4,069,101)
                                                                        ------------    ------------    ------------
Net cash provided by (used in) investing activities .................      4,645,677      (7,724,702)     (6,260,082)
                                                                        ------------    ------------    ------------
Cash flows from financing activities
Increase (decrease) in notes payable to bank ........................      1,500,000     (55,000,000)     60,000,000
Increase (decrease) in notes payable to portfolio companies .........     (3,500,000)      1,000,000       5,000,000
Distributions from undistributed net investment income ..............     (2,294,631)     (2,289,031)     (2,289,031)
Proceeds from exercise of employee stock options ....................        498,750            --              --
                                                                        ------------    ------------    ------------
Net cash provided by (used in) financing activities .................     (3,795,881)    (56,289,031)     62,710,969
                                                                        ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ................        839,413     (62,848,948)     57,936,272
Cash and cash equivalents at beginning of year ......................      1,137,767      63,986,715       6,050,443
                                                                        ------------    ------------    ------------
Cash and cash equivalents at end of year ............................   $  1,977,180    $  1,137,767    $ 63,986,715
                                                                        ============    ============    ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:. Interest ............................   $    922,011    $  1,144,558    $    436,023
                                Income taxes ........................   $        287    $     11,591    $  4,092,891

</TABLE>



                 See Notes to Consolidated Financial Statements
<PAGE>

                   Notes to Consolidated Financial Statements


1.   Summary of Significant Accounting Policies

     Capital Southwest  Corporation  ("CSC") is a business  development  company
subject  to  regulation  under  the  Investment  Company  Act of  1940.  Capital
Southwest Venture Corporation  ("CSVC"), a wholly-owned  subsidiary of CSC, is a
Federal licensee under the Small Business  Investment Act of 1958. The following
is a summary of significant  accounting  policies followed in the preparation of
the consolidated financial statements of CSC and CSVC (together, the "Company"):

     Principles of  Consolidation.  The consolidated  financial  statements have
been prepared on the value method of accounting  in accordance  with  accounting
principles  generally  accepted in the United  States of America for  investment
companies.  All significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

     Cash and Cash Equivalents. All temporary cash investments having a maturity
of three months or less when purchased are considered to be cash equivalents.

     Investments.  Investments are stated at market or fair value  determined by
the Board of Directors as described in the Notes to Portfolio of Investments and
Note 2 below. The average cost method is used in determining cost of investments
sold.  Investments are recorded on a trade date basis.  Dividends are recognized
on the ex-dividend date and interest income is accrued daily.

     Segment  Information.  The Company  operates  and manages its business in a
singular  segment.  As an investment  company,  the Company invests in portfolio
companies  in  various  industries  and  geographic  areas as  presented  in the
portfolio of investments.

2.   Valuation of Investments

     The consolidated financial statements as of March 31, 2002 and 2001 include
securities  valued  at  $317,137,082  (91%  of the  value  of  the  consolidated
investment  portfolio) and  $285,059,091  (90% of the value of the  consolidated
investment  portfolio),  respectively,  whose values have been determined by the
Board of  Directors  in the  absence of  readily  ascertainable  market  values.
Because  of the  inherent  uncertainty  of  valuation,  these  values may differ
significantly  from the values that would have been used had a ready  market for
the securities existed, and the differences could be material.

3.   Income taxes

     For the tax years ended  December  31,  2001,  2000 and 1999,  CSC and CSVC
qualified  to  be  taxed  as  regulated   investment  companies  ("RICs")  under
applicable  provisions of the Internal  Revenue Code. As RICs, CSC and CSVC must
distribute  at least 90% of their  taxable  net  investment  income  (investment
company  taxable  income) and may either  distribute or retain their taxable net
realized gain on investments  (capital gains).  Both CSC and CSVC intend to meet
the  applicable  qualifications  to be taxed as RICs in future  years;  however,
either company's ability to meet certain portfolio diversification  requirements
of RICs in future years may not be controllable by such company.

     No material  provision was made for Federal  income taxes on the investment
company taxable income of CSC and CSVC for the 2002, 2001 and 2000 fiscal years.
Such income was  distributed to  shareholders  in the form of cash dividends for
which CSC and CSVC  receive a tax  deduction.  With  respect  to net  investment
income,  the income tax expense for each of the three years ended March 31, 2002
includes a deferred tax provision related to the net pension benefit.

     CSC and CSVC may not qualify or elect to be taxed as RICs in future  years.
Therefore,  consolidated  deferred  Federal  income  taxes  of  $92,107,000  and
$79,310,000 have been provided on net unrealized  appreciation of investments of
$265,287,211  and  $228,315,863 at March 31, 2002 and 2001,  respectively.  Such
appreciation is not included in taxable income until  realized.  Deferred income
taxes on net unrealized  appreciation  of investments  have been provided at the
then currently  effective maximum Federal corporate tax rate on capital gains of
35% at March 31, 2002 and 2001.

<PAGE>

4.   Notes Payable

     The note  payable to bank at March 31, 2002 and 2001 was from an  unsecured
$15,000,000  revolving  line of credit,  of which  $6,500,000 and $5,000,000 had
been drawn,  respectively.  The revolving  line of credit bears  interest at the
bank's base rate less .50% or LIBOR plus 1.25% and matures on July 31, 2002.

     The notes payable to portfolio  companies were demand  promissory  notes to
Skylawn Corporation and The Whitmore Manufacturing Company with interest payable
at prime minus 2.25%.  Interest expense on these portfolio companies' notes were
$216,280 in 2002 and $421,870 in 2001.

5.   Subordinated Debenture

     The subordinated  debenture of $5,000,000 outstanding at March 31, 2002 and
2001 is payable to others and  guaranteed by the Small  Business  Administration
("SBA"), bears interest at 8.0% and matures June 1, 2002.

6.   Employee Stock Option Plan

     Under the 1984  Incentive  Stock Option Plan,  options to purchase  28,000,
42,000 and 42,000  shares of common stock at $35.625 per share (the market price
at the time of grant) were  outstanding  and exercisable at March 31, 2002, 2001
and 2000,  respectively,  and expire in 2003. During the three years ended March
31,  14,000  options were  exercised in 2002 and -0- were  exercised in 2001 and
2000. The 1984 Incentive Stock Option Plan expired in 1994.

     Under the 1999  Stock  Option  Plan,  140,000  shares of common  stock were
reserved  for issuance to  employees  and  officers of the  Company.  Options to
purchase  32,000  shares  at a price of $77.00  per share and 6,000  shares at a
price of $84.70 per share were granted  during the year ended March 31, 2000. No
options were granted  during the year ended March 31, 2001.  Options to purchase
29,000  shares at a price of $65.00  per share and  15,000  shares at a price of
$65.70 per share were granted  during the year ended March 31, 2002.  During the
year ended March 31,  2002,  options to purchase  27,500  shares were  canceled,
leaving a total of 54,500  options  outstanding at March 31, 2002 and a total of
85,500  options  available for future grant.  Options to purchase  38,000 shares
were  outstanding  at March 31, 2001 and 2000.  All options  were  granted at or
above market price and expire ten years from the date of grant and are generally
exercisable  on or after the first  anniversary  of the date of grant in five to
ten annual  installments.  At March 31, 2002, 2001 and 2000, options to purchase
8,100, 7,750 and 2,400 shares under the 1999 Stock Option Plan were exercisable.

     At March 31, 2002, if all vested  outstanding  options for which the market
price  exceeds the exercise  price had been  exercised,  the Company's net asset
value would have been reduced by $0.22 per share,  assuming the option  proceeds
received  increased  the  Company's  net  asset  value and the  optioned  shares
increased the number of shares  outstanding.  As of March 31, 2001,  exercise of
all such options  would have reduced the  Company's net asset value by $0.26 per
share.

<PAGE>
<TABLE>
<CAPTION>

7.   Employee Stock Ownership Plan

     The  Company  and one of its  wholly-owned  portfolio  companies  sponsor a
qualified  employee  stock  ownership  plan ("ESOP") in which certain  employees
participate. Contributions to the plan, which are invested in Company stock, are
made at the discretion of the Board of Directors.  A  participant's  interest in
contributions to the ESOP fully vests after five years of active service. During
the three  years ended March 31, the  Company  made  contributions  to the ESOP,
which were charged against net investment income, of $28,322 in 2002, $42,997 in
2001 and $43,862 in 2000.

8.   Retirement Plans

     The Company sponsors a qualified  defined benefit pension plan which covers
its employees and employees of certain of its wholly-owned  portfolio companies.
The following  information  about the plan  represents  amounts and  information
related to the  Company's  participation  in the plan and is presented as though
the Company  sponsored a  single-employer  plan.  Benefits are based on years of
service and an average of the highest  five  consecutive  years of  compensation
during the last ten years of  employment.  The funding  policy of the plan is to
contribute  annual  amounts  that are  currently  deductible  for tax  reporting
purposes.  No  contribution  was made to the plan  during the three  years ended
March 31, 2002.

     The following tables set forth the qualified plan's benefit obligations and
fair value of plan assets at March 31, 2002, 2001 and 2000:

                                                      Years Ended March 31
                                         --------------------------------------------
                                              2002            2001            2000
                                         ------------    ------------    ------------
<S>                                      <C>             <C>             <C>
Change in benefit obligation
Benefit obligation at beginning
     of  year ........................   $  3,255,669    $  3,260,366    $  3,315,119
Service cost .........................         58,428          50,961          43,818
Interest cost ........................        207,940         205,976         193,397
Actuarial gain (loss) ................         94,298          59,571        (201,158)
Benefits paid ........................       (331,872)       (321,205)        (90,810)
                                         ------------    ------------    ------------
Benefit obligation at end of year ....   $  3,284,463    $  3,255,669    $  3,260,366
                                         ============    ============    ============


Change in plan assets
Fair value of plan assets at beginning
     of  year ........................   $  8,758,035    $  9,837,547    $ 10,074,598
Actual return on plan assets .........        984,157        (758,307)       (146,241)
Benefits paid ........................       (331,872)       (321,205)        (90,810)
                                         ------------    ------------    ------------
Fair value of plan assets at end of
     year ............................   $  9,410,320    $  8,758,035    $  9,837,547
                                         ============    ============    ============
</TABLE>

<PAGE>

     The  following  table sets forth the  qualified  plan's  funded  status and
amounts  recognized  in  the  Company's  consolidated  statements  of  financial
condition:

                                                             March 31
                                                     --------------------------
                                                         2002           2001
                                                     -----------    -----------
Actuarial present value of benefit obligations:
     Accumulated benefit obligation ................ $(2,906,821)   $(2,938,747)
                                                     ===========    ===========

Projected benefit obligation for service rendered to
     date .......................................... $(3,284,463)   $(3,255,669)
Plan assets at fair value* .........................   9,410,320      8,758,035
                                                     -----------    -----------
Excess of plan assets over the projected benefit
     obligation ....................................   6,125,857      5,502,366
Unrecognized net (gain) loss from past experience
     different from that assumed and effects of
     changes in assumptions ........................      32,117        109,379
Prior service costs not yet recognized .............    (140,319)      (151,642)
Unrecognized net assets being amortized over
     19 years ......................................    (221,477)      (295,308)
                                                     -----------    -----------
Prepaid pension cost included in other assets ...... $ 5,796,178    $ 5,164,795
                                                     ===========    ===========
--------------
*Primarily  equities and bonds including  approximately  30,000 shares of common
stock of the Company.

     Components of net pension benefit related to the qualified plan include the
following:

                                                  Years Ended March 31
                                      -----------------------------------------
                                          2002           2001           2000
                                      -----------    -----------    -----------
Service cost - benefits earned during
     the year ....................... $    58,428    $    50,961    $    43,818
Interest cost on projected benefit
     obligation .....................     207,940        205,976        193,397
Actual return on assets .............    (984,157)       758,307        146,241
Net amortization and deferral .......      86,406     (1,653,169)      (960,903)
                                      -----------    -----------    -----------
Net pension benefit from
     qualified plan ................. $  (631,383)   $  (637,925)   $  (577,447)
                                      ===========    ===========    ===========

     The Company also sponsors an unfunded Retirement Restoration Plan, which is
a  nonqualified  plan that  provides for the payment,  upon  retirement,  of the
difference  between the maximum annual payment  permissible  under the qualified
retirement  plan  pursuant  to Federal  limitations  and the amount  which would
otherwise have been payable under the qualified plan.

<PAGE>

     The following  table sets forth the Retirement  Restoration  Plan's benefit
obligations at March 31, 2002, 2001 and 2000:

                                                 Years Ended March 31
                                      -----------------------------------------
                                          2002           2001           2000
                                      -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ...................     $ 1,758,214    $ 2,026,495    $ 2,166,180
Service cost ....................           8,573          4,945          4,089
Interest cost ...................         113,779        113,497        117,541
Actuarial gain (loss) ...........          97,210       (176,776)      (261,315)
Benefits paid ...................        (199,280)      (209,947)          --
                                      -----------    -----------    -----------
Benefit obligation at end of year     $ 1,778,496    $ 1,758,214    $ 2,026,495
                                      ===========    ===========    ===========

     The  following  table sets forth the status of the  Retirement  Restoration
Plan and the amounts  recognized  in the  consolidated  statements  of financial
condition:

                                                              March 31
                                                     --------------------------
                                                         2002           2001
                                                     -----------    -----------

Projected benefit obligation .....................   $(1,778,496)   $(1,758,214)
Unrecognized net (gain) loss from past ex-
     perience different from that assumed
     and effects of changes in assumptions .......       (34,465)      (131,675)
Unrecognized prior service costs .................        65,380         69,875
                                                     -----------    -----------
Accrued pension cost included in other liabilities   $(1,747,581)   $(1,820,014)
                                                     ===========    ===========

     The Retirement  Restoration Plan expenses recognized during the years ended
March 31, 2002, 2001 and 2000 of $126,847, $151,751 and $141,463,  respectively,
are offset against the net pension benefit from the qualified plan.

     The  weighted-average   discount  rate  and  rate  of  increase  in  future
compensation  levels used in  determining  the  actuarial  present  value of the
projected  benefit  obligation  were 6.5% and 5.0%,  respectively,  at March 31,
2002,  March 31, 2001 and March 31, 2000. The expected  long-term rate of return
used to project  estimated  earnings on plan assets for the  qualified  plan was
7.5% for the years ended March 31, 2002,  March 31, 2001 and March 31, 2000. The
calculations also assume retirement at age 65, the normal retirement age.

<PAGE>

9.   Sources of Income

     Income was derived from the following sources:


                                      Investment  Income           Realized Gain
Years Ended              ------------------------------------------  (Loss) on
March 31                                                            Investments
--------                                                  Other    Before Income
2002                        Interest    Dividends        Income        Taxes
----                     ------------------------------------------------------

Companies more than
   25% owned .........   $    39,200   $ 2,996,591   $   487,400    $      --
Companies 5% to 25%
   owned .............        99,041          --            --             --
Companies less than
   5% owned ..........       133,549       297,042        43,000       (762,114)
Other sources,
   including temporary
   investments .......        50,731          --            --             --
                         ------------------------------------------------------
                         $   322,521   $ 3,293,633   $   530,400    $  (762,114)
                         ======================================================

2001
----
Companies more than
   25% owned .........   $    72,800   $ 2,585,386   $   494,900    $      --
Companies 5% to 25%
   owned .............          --            --            --       (3,000,000)
Companies less than
   5% owned ..........       217,080       370,447        35,500     (2,125,493)
Other sources,
   including temporary
   investments .......       252,361          --            --             --
                         ------------------------------------------------------
                         $   542,241   $ 2,955,833   $   530,400    $(5,125,493)
                         ======================================================

2000
----
Companies more than
   25% owned .........   $   106,400   $ 1,440,755   $   487,400    $      --
Companies 5% to 25%
   owned .............          --            --          (1,500)     8,133,870
Companies less than
   5% owned ..........       173,105       438,098        39,500      1,097,572
Other sources,
   including temporary
   investments .......       604,647          --            --             --
                         ------------------------------------------------------
                         $   884,152   $ 1,878,853   $   525,400    $ 9,231,442
                         ======================================================

<PAGE>

10.  Summarized Financial Information of Wholly-Owned Portfolio Companies

     The Company has three significant  wholly-owned  portfolio  companies - The
RectorSeal   Corporation,   The  Whitmore   Manufacturing  Company  and  Skylawn
Corporation - which are neither  investment  companies nor business  development
companies.  Accordingly,  the  accounts  of  such  portfolio  companies  are not
included with those of the Company. Summarized combined financial information of
the three portfolio companies is as follows:

(all figures in thousands)                          March 31
                                          ------------------------------
                                            2002                  2001
                                          --------              --------
Condensed Balance Sheet Data
   Assets
   Cash and temporary
     investments ......................   $ 21,884              $ 14,815
   Receivables ........................     28,092                30,504
   Inventories ........................     38,721                37,536
   Property, plant and equipment ......     38,109                38,609
   Other assets .......................     21,072                19,783
                                          --------              --------
     Totals ...........................   $147,878              $141,247
                                          ========              ========

   Liabilities and Shareholder's Equity
   Long-term debt .....................   $ 10,594              $  8,334
   Other liabilities ..................     16,926                19,414
   Shareholder's equity ...............    120,358               113,499
                                          --------              --------
     Totals ...........................   $147,878              $141,247
                                          ========              ========

Condensed Statements of Income ........     2002       2001       2000
                                          --------   --------   --------
   Revenues ...........................   $ 96,417   $ 93,575   $ 91,608
   Costs and operating expenses .......   $ 83,475   $ 80,952   $ 79,237
   Net income .........................   $  9,137   $  9,830   $  7,917

11.  Commitments

     The  Company  has agreed,  subject to certain  conditions,  to invest up to
$3,239,346 in six portfolio companies.

     The Company  leases  office space under an operating  lease which  requires
base annual rentals of  approximately  $59,000 through  February,  2003. For the
three years ended March 31, total rental  expense  charged to investment  income
was $58,984 in 2002, $58,145 in 2001 and $57,479 in 2000.



<PAGE>
<TABLE>
<CAPTION>

                       Selected Per Share Data and Ratios


                                                                                         Years Ended March
                                                                 -----------------------------------------------------------------
Per Share Data                                                       2002          2001         2000           1999          1998
                                                                -----------------------------------------------------------------
<S>                                                              <C>           <C>           <C>           <C>           <C>
Investment income ............................................   $    1.08     $    1.06     $     .86     $    1.00     $    1.28
Operating expenses ...........................................        (.27)         (.26)         (.27)         (.40)         (.42)
Interest expense .............................................        (.24)         (.30)         (.12)         (.11)         (.11)
Income taxes .................................................        (.04)         (.05)         (.03)         (.03)         (.03)
                                                                 -----------------------------------------------------------------
Net investment income ........................................         .53           .45           .44           .46           .72
Distributions from undistributed net investment income .......        (.60)         (.60)         (.60)         (.60)         (.60)
Net realized gain (loss) on investments ......................        (.14)         (.85)         1.58           .26          1.71
Net increase (decrease) in unrealized appreciation of
  investments after deferred taxes ....                               6.31         (1.69)        (6.49)       (10.81)        18.32
Exercise of employee stock options* ..........................        (.08)         --            --            (.30)         (.13)
                                                                 -----------------------------------------------------------------



Increase (decrease) in net asset value .......................        6.02         (2.69)        (5.07)       (10.99)        20.02
Net asset value:
  Beginning of year ..........................................       59.40         62.09         67.16         78.15         58.13
                                                                 -----------------------------------------------------------------
  End of year ................................................   $   65.42     $   59.40     $   62.09     $   67.16     $   78.15
                                                                 =================================================================

Increase (decrease) in deferred taxes on
   unrealized appreciation ...................................   $    3.26     $   (1.01)    $   (3.49)    $ (6.04)      $    9.74
Deferred taxes on unrealized appreciation:
  Beginning of year ..........................................       20.79         21.80         25.29         31.33         21.59
                                                                 -----------------------------------------------------------------
  Ending of year .............................................   $   24.05     $   20.79     $   21.80     $   25.29     $   31.33
                                                                 =================================================================

Ratios and Supplemental Data
Ratio of operating expenses to average net assets ............        .42%          .42%          .42%          .55%          .60%
Ratio of operating expenses to average net assets
  plus average deferred taxes on unrealized appreciation  ....        .31%          .31%          .31%          .39%          .44%
Ratio of net investment income to average net assets .........        .85%          .74%          .67%          .63%         1.05%
Portfolio turnover rate ......................................       1.05%         2.56%         4.26%          .19%         2.45%
Shares outstanding at end of period (000s omitted) ...........       3,829         3,815         3,815         3,815         3,788
</TABLE>

--------------
*Net  decrease is due to the exercise of employee  stock  options at prices less
than beginning of period net asset value.

<PAGE>


Independent Auditors' Report


The Board of Directors and Shareholders
   Capital Southwest Corporation:


     We have  audited the  accompanying  consolidated  statements  of  financial
condition of Capital  Southwest  Corporation and subsidiary as of March 31, 2002
and 2001,  including the portfolio of  investments as of March 31, 2002, and the
related consolidated  statements of operations,  changes in net assets, and cash
flows for each of the years in the  three-year  period  ended March 31, 2002 and
the  selected  per share data and ratios for each of the years in the  five-year
period ended March 31, 2002.  These financial  statements and per share data and
ratios are the responsibility of the Company's management. Our responsibility is
to  express  an opinion  on these  financial  statements  and per share data and
ratios based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and per share data and ratios are free of material  misstatement.  An
audit includes examining,  on a test basis,  evidence supporting the amounts and
disclosures in the financial  statements.  Our procedures  included the physical
examination  of  securities  owned as of March 31,  2002 and  2001,  held by the
custodian.  An audit also includes assessing the accounting  principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion the consolidated financial statements and selected per share
data and ratios referred to above present fairly, in all material respects,  the
financial  position of Capital Southwest  Corporation and subsidiary as of March
31,  2002 and 2001,  the results of their  operations,  the changes in their net
assets and their cash flows for each of the years in the three-year period ended
March 31, 2002, and the selected per share data and ratios for each of the years
in the  five-year  period ended March 31, 2002, in  conformity  with  accounting
principles generally accepted in the United States of America.




                                                                KPMG LLP
Dallas, Texas
April 19, 2002

<PAGE>



                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations



Results of Operations

     The  composite  measure  of  the  Company's  financial  performance  in the
Consolidated  Statements of Operations is captioned "Increase  (decrease) in net
assets  from  operations"  and  consists  of three  elements.  The first is "Net
investment  income",  which is the difference  between the Company's income from
interest,  dividends and fees and its combined  operating and interest expenses,
net of applicable  income taxes. The second element is "Net realized gain (loss)
on  investments",  which is the  difference  between the proceeds  received from
disposition  of portfolio  securities  and their stated cost,  net of applicable
income  tax  expense.  The third  element  is the "Net  increase  (decrease)  in
unrealized  appreciation of investments",  which is the net change in the market
or fair value of the Company's investment portfolio,  compared with stated cost,
net of an  increase or decrease  in  deferred  income  taxes which would  become
payable if the unrealized  appreciation  were realized through the sale or other
disposition  of the  investment  portfolio.  It  should  be noted  that the "Net
realized gain (loss) on investments" and "Net increase  (decrease) in unrealized
appreciation  of investments"  are directly  related in that when an appreciated
portfolio  security is sold to realize a gain, a  corresponding  decrease in net
unrealized  appreciation  occurs by  transferring  the gain  associated with the
transaction from being "unrealized" to being "realized." Conversely, when a loss
is realized on a depreciated  portfolio security,  an increase in net unrealized
appreciation occurs.

Net Investment Income

     The  Company's  principal  objective  is to achieve  capital  appreciation.
Therefore,  a significant  portion of the investment  portfolio is structured to
maximize the potential  return from equity  participation  and provides  minimal
current  yield in the form of interest  or  dividends.  The  Company  also earns
interest  income from the  short-term  investment of cash funds,  and the annual
amount of such  income  varies  based upon the average  level of funds  invested
during the year and fluctuations in short-term  interest rates. During the three
years  ended  March 31, the Company had  interest  income  from  temporary  cash
investments  of $48,877 in 2002,  $249,000  in 2001 and  $599,000  in 2000.  The
Company also receives management fees from its wholly-owned  portfolio companies
which  aggregated  $458,400 in each of the years ended March 31, 2002, March 31,
2001 and March 31,  2000.  During the three  years  ended  March 31,  2002,  the
Company recorded dividend income from the following sources:

                                                     Years Ended March 31
                                            ------------------------------------
                                               2002         2001         2000
                                            ----------   ----------   ----------
AT&T Corp. ................................ $   19,987   $   68,621   $  146,570
Alamo Group Inc. ..........................    677,112      677,112      790,756
Dennis Tool Company .......................     49,999       49,999       49,999
Kimberly-Clark Corporation ................     87,985       84,126       81,039
The RectorSeal Corporation ................    960,000      960,000      240,000
Skylawn Corporation .......................  1,069,480      658,275      300,000
TCI Holdings, Inc. ........................     81,270       81,270       81,270
Texas Shredder, Inc. ......................     44,506       40,460       40,460
The Whitmore Manufacturing Company ........    240,000      240,000       60,000
Other .....................................     63,294       95,970       88,759
                                            ----------   ----------   ----------
                                            $3,293,633   $2,955,833   $1,878,853
                                            ==========   ==========   ==========

<PAGE>

     Total operating expenses,  excluding interest expense, increased by $43,684
or 4.5% and  decreased  by $47,073 or 4.6% during the years ended March 31, 2002
and 2001,  respectively.  Due to the nature of its business, the majority of the
Company's operating expenses are related to employee and director  compensation,
office expenses, legal and accounting fees and the net pension benefit. Interest
expense  decreased  by  $214,965  during the year ended  March 31, 2002 due to a
decrease in interest rates. For the year ended March 31, 2001,  interest expense
increased by $688,075 due to increased borrowings.

Net Realized Gain (Loss) on Investments

     Net realized loss on investments  was $537,934 (after income tax benefit of
$224,180)  during  the  year  ended  March  31,  2002,  compared  with a loss of
$3,230,987  (after income tax benefit of  $1,894,506)  during 2001 and a gain of
$6,019,892 (after income tax expense of $3,211,550) during 2000. Management does
not attempt to maintain a comparable  level of realized gains from year to year,
but instead attempts to maximize total investment portfolio  appreciation.  This
strategy often dictates the long-term holding of portfolio securities in pursuit
of increased values and increased unrealized appreciation,  but may at opportune
times  dictate  realizing  gains or losses  through the  disposition  of certain
portfolio  investments.

Net Increase (Decrease) in Unrealized Appreciation of Investments

     For the three  years  ended  March 31, the  Company  recorded  an  increase
(decrease)  in unrealized  appreciation  of  investments  before income taxes of
$36,971,348,   $(10,310,835)   and   $(38,071,790)   in  2002,  2001  and  2000,
respectively.  As  explained  in the  first  paragraph  of this  discussion  and
analysis, the realization of gains or losses results in a corresponding decrease
or  increase  in  unrealized  appreciation  of  investments.  Set  forth  in the
following  table are the  significant  increases  and  decreases  in  unrealized
appreciation  (before the related change in deferred  income taxes and excluding
the effect of gains or losses realized during the year) by portfolio company for
securities held at the end of each year.

                                                 Years Ended March 31
                                  --------------------------------------------
                                       2002            2001            2000
                                  ------------    ------------    ------------

AT&T Corp. ....................   $   (746,162)   $ (4,681,896)   $    430,271
Alamo Group Inc. ..............      2,821,000       2,821,000       7,276,953
All Components, Inc. ..........        (50,000)      3,450,000       1,975,000
American Homestar Corporation .           --              --        (4,224,707)
Amfibe, Inc. ..................           --              --         3,900,000
Balco, Inc. ...................      1,482,240            --        (2,529,600)
CDC Technologies, Inc./Drew
     Scientific Group PLC .....        (38,098)     (2,592,541)     (3,099,156)
Concert Industries Ltd. .......     (3,740,000)        294,351            --
Dyntec, Inc. ..................           --              --        (4,499,998)
Encore Wire Corporation .......     10,898,000            --        (2,724,000)
Liberty Media Group ...........       (921,280)    (10,605,732)     11,183,260
Mail-Well, Inc. ...............       (524,000)     (6,290,000)     (5,241,000)
Media Recovery, Inc. ..........     (8,000,000)     10,000,000       2,585,000
Organized Living, Inc. ........     (3,000,000)           --              --
Palm Harbor Homes, Inc. .......     31,420,000      (7,855,000)    (39,276,000)
PETsMART, Inc. ................      5,298,343         654,220      (3,271,100)
The RectorSeal Corporation ....      2,500,000       5,500,000       3,500,000
Skylawn Corporation ...........           --         3,000,000            --
Sprint Corporation-FON Group ..       (482,400)     (2,952,720)      1,003,500

<PAGE>

     A description of the investments listed above and other material components
of the  investment  portfolio  is included  elsewhere  in this report  under the
caption "Portfolio of Investments - March 31, 2002."

Deferred Taxes on Unrealized Appreciation of Investments

     The Company  provides for deferred  Federal  income taxes on net unrealized
appreciation  of  investments.  Such taxes would become  payable at such time as
unrealized  appreciation  is realized  through the sale or other  disposition of
those  components  of the  investment  portfolio  which would  result in taxable
transactions.  At March 31, 2002  consolidated  deferred Federal income taxes of
$92,107,000  were provided on net  unrealized  appreciation  of  investments  of
$265,287,211  compared  with deferred  taxes of  $79,310,000  on net  unrealized
appreciation of  $228,315,863 at March 31, 2001.  Deferred income taxes at March
31, 2002 and 2001 were provided at the then currently  effective maximum Federal
corporate tax rate on capital gains of 35%.

Portfolio Investments

     During the year ended March 31, 2002,  the Company  invested  $3,545,458 in
various  portfolio  securities listed elsewhere in this report under the caption
"Portfolio  Changes During the Year," which also lists dispositions of portfolio
securities.  During the 2001 and 2000 fiscal years, the Company invested a total
of $15,922,079 and $21,924,423, respectively.

Financial Liquidity and Capital Resources

     At  March  31,  2002,  the  Company  had  cash  and  cash   equivalents  of
approximately $2.0 million.  Pursuant to Small Business  Administration  ("SBA")
regulations,  cash and cash  equivalents of $0.7 million held by CSVC may not be
transferred or advanced to CSC without the consent of the SBA. Under current SBA
regulations and subject to SBA's approval of its credit application,  CSVC would
be  entitled  to  borrow  up to $58.8  million  in  addition  to the $5  million
presently  outstanding.  The Company also has an unsecured $15,000,000 revolving
line of credit from a commercial  bank,  of which  $8,500,000  was  available at
March 31, 2002.  With the exception of a capital gain  distribution  made in the
form of a  distribution  of the stock of a portfolio  company in the fiscal year
ended March 31,  1996,  the  Company  has  elected to retain all gains  realized
during the past 34 years.  Retention  of future  gains is viewed as an important
source of funds to sustain  the  Company's  investment  activity.  Approximately
$30.3  million  of  the  Company's   investment   portfolio  is  represented  by
unrestricted  publicly-traded  securities,  which have an  ascertainable  market
value and represent a primary source of liquidity.

     Funds to be used by the Company for operating or investment purposes may be
transferred  in the form of  dividends,  management  fees or loans from  Skylawn
Corporation,  The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned  portfolio  companies  of the  Company,  to  the  extent  of  their
available cash reserves and borrowing capacities.

     Management  believes that the Company's cash and cash  equivalents and cash
available from other sources  described  above are adequate to meet its expected
requirements.  Consistent  with  the  long-term  strategy  of the  Company,  the
disposition of investments  from time to time may also be an important source of
funds for future investment activities.

<PAGE>

Critical Accounting Policies

Valuation of Investments

     In  accordance  with the  Investment  Company Act of 1940,  investments  in
unrestricted  securities (freely marketable  securities having readily available
market quotations) are valued at market and investments in restricted securities
(securities subject to one or more resale restrictions) are valued at fair value
determined  in good  faith  by the  Company's  Board  of  Directors.  Under  the
valuation  policy of the  Company,  unrestricted  securities  are  valued at the
closing  sale price for listed  securities  and at the lower of the  closing bid
price or the last sale  price  for  Nasdaq  securities  on the  valuation  date.
Restricted  securities,  including securities of publicly-owned  companies which
are  subject to  restrictions  on resale,  are  valued at fair  value,  which is
considered to be the amount the Company may reasonably expect to receive if such
securities  were sold on the valuation  date.  Valuations  as of any  particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.

     Among the factors  considered by the Board of Directors in determining  the
fair value of restricted  securities  are the financial  condition and operating
results of the issuer,  the  long-term  potential of the business of the issuer,
the market for and recent sales prices of the issuer's securities, the values of
similar securities issued by companies in similar businesses,  the proportion of
the issuer's securities owned by the Company,  the nature and duration of resale
restrictions  and the nature of any rights  enabling  the Company to require the
issuer to register  restricted  securities under applicable  securities laws. In
determining  the fair  value of  restricted  securities  the Board of  Directors
considers  the  inherent  value  of  such  securities   without  regard  to  the
restrictive  feature and  adjusts for any  diminution  in value  resulting  from
restrictions on resale.

Deferred Income Taxes

     In future  years,  the  Company  may not  qualify or elect to be taxed as a
regulated investment company ("RIC") under applicable provisions of the Internal
Revenue Code. Therefore, deferred Federal income taxes have been provided on net
unrealized appreciation of investments at the then currently effective corporate
tax rate on capital gains.

Impact of Inflation

     The Company does not believe that its  business is  materially  affected by
inflation,  other than the impact  which  inflation  may have on the  securities
markets,  the valuations of business  enterprises  and the  relationship of such
valuations to underlying earnings,  all of which will influence the value of the
Company's investments.

Risks

     Pursuant to Section  64(b)(1)  of the  Investment  Company  Act of 1940,  a
business  development  company is required to describe the risk factors involved
in an  investment  in the  securities  of such  company due to the nature of the
company's investment portfolio. Accordingly the Company states that:

     The  Company's  objective  is  to  achieve  capital   appreciation  through
investments in businesses  believed to have  favorable  growth  potential.  Such
businesses are often  undercapitalized  small  companies  which lack  management
depth and have not yet attained profitability. The Company's venture investments
often  include  securities  which do not yield  interest  or  dividends  and are
subject  to legal or  contractual  restrictions  on resale,  which  restrictions
adversely affect the liquidity and marketability of such securities.

     Because of the speculative nature of the Company's investments and the lack
of any market for the securities initially purchased by the Company,  there is a
significantly greater risk of loss than is the case with traditional  investment
securities. The high-risk,  long-term nature of the Company's venture investment
activities  may  prevent  shareholders  of  the  Company  from  achieving  price
appreciation and dividend distributions.



<PAGE>
<TABLE>
<CAPTION>

                      Selected Consolidated Financial Data
                (all figures in thousands except per share data)


                                                 1992         1993         1994         1995         1996         1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>
Financial Position  (as of March 31)
Investments at cost ........................   $  34,929    $  33,953    $  41,993    $  49,730    $  58,544    $  59,908
Unrealized appreciation ....................     100,277      113,153      132,212      153,031      198,386      233,383
                                               ---------    ---------    ---------    ---------    ---------    ---------
Investments at market or
   fair value ..............................     135,206      147,106      174,205      202,761      256,930      293,291
Total assets ...............................     208,871      176,422      270,874      213,811      326,972      310,760
Subordinated debentures ....................      11,000       15,000       15,000       11,000       11,000        5,000
Deferred taxes on
   unrealized appreciation .................      33,761       38,112       45,932       53,247       69,121       81,313
Net assets .................................     107,522      121,455      133,053      147,370      189,048      218,972
Shares outstanding .........................       3,644        3,681        3,715        3,735        3,767        3,767
-----------------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ......................   $   2,363    $   2,189    $   2,870    $   2,447    $   2,855    $   2,574
Net realized gain (loss) on
   investments .............................      14,313        5,099         (475)         142       11,174        6,806
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................      (4,541)       8,524       11,160       13,584       38,746       22,804
                                               ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ....................      12,135       15,812       13,555       16,173       52,775       32,184
Cash dividends paid ........................      (2,181)      (2,202)      (2,228)      (2,241)      (2,270)      (2,260)
Securities distributed .....................        --           --           --           --         (9,402)        --
Employee stock options
   exercised ...............................         429          322          272          385          575         --
                                               ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net assets ..........      10,383       13,932       11,599       14,317       41,678       29,924
-----------------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation .................   $    9.27    $   10.35    $   12.36    $   14.26    $   18.35    $   21.59
Net assets .................................       29.51        32.99        35.81        39.46        50.18        58.13
Closing market price .......................       24.25        36.50       38.125        38.00        60.00       67.875
Cash dividends paid ........................         .60          .60          .60          .60          .60          .60
Securities distributed .....................        --           --           --           --           2.50         --



<PAGE>

                 Selected Consolidated Financial Data Continued
                (all figures in thousands except per share data)

                                                 1998         1999         2000         2001         2002
------------------------------------------------------------------------------------------------------------

Financial Position  (as of March 31)
Investments at cost ........................   $  61,154    $  73,580    $  85,002    $  87,602    $  82,194
Unrealized appreciation ....................     340,132      276,698      238,627      228,316      265,287
                                               ---------    ---------    ---------    ---------    ---------
Investments at market or
   fair value ..............................     401,286      350,278      323,629      315,918      347,481
Total assets ...............................     522,324      360,786      392,586      322,668      357,183
Subordinated debentures ....................       5,000        5,000        5,000        5,000        5,000
Deferred taxes on
   unrealized appreciation .................     118,674       96,473       83,151       79,310       92,107
Net assets .................................     296,023      256,232      236,876      226,609      250,491
Shares outstanding .........................       3,788        3,815        3,815        3,815        3,829
------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ......................   $   2,726    $   1,762    $   1,663    $   1,723    $   2,042
Net realized gain (loss) on
   investments .............................       6,485          995        6,020       (3,231)        (538)
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................      69,388      (41,233)     (24,750)      (6,470)      24,174
                                               ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ....................      78,599      (38,476)     (17,067)      (7,978)      25,678
Cash dividends paid ........................      (2,268)      (2,280)      (2,289)      (2,289)      (2,295)
Securities distributed .....................        --           --           --           --           --
Employee stock options
   exercised ...............................         720          965         --           --            499
                                               ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net assets ..........      77,051      (39,791)     (19,356)     (10,267)      23,882
------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation .................   $   31.33    $   25.29    $   21.80    $   20.79    $   24.05
Net assets .................................       78.15        67.16        62.09        59.40        65.42
Closing market price .......................       94.00        73.00        54.75        65.00        68.75
Cash dividends paid ........................         .60          .60          .60          .60          .60
Securities distributed .....................        --           --           --           --           --
</TABLE>

<PAGE>


                             Shareholder Information


Stock Transfer Agent

     American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038
(telephone  800-937-5449)  serves as  transfer  agent for the  Company's  common
stock.  Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.

Shareholders

     The Company had  approximately  900 record  holders of its common  stock at
March 31, 2002. This total does not include an estimated 1,800 shareholders with
shares held under beneficial  ownership in nominee name or within  clearinghouse
positions of brokerage firms or banks.

Market Prices

     The  Company's  common  stock  trades on The Nasdaq  Stock Market under the
symbol CSWC.  The  following  high and low selling  prices for the shares during
each quarter of the last two fiscal years were taken from quotations provided to
the Company by Nasdaq:

Quarter Ended                                                High        Low
--------------------------------------------------------------------------------
June 30, 2000....................................          $61 1/4    $  53
September 30, 2000...............................           62 1/2       57
December 31, 2000................................           59 3/4       50 5/8
March 31, 2001...................................           68%          52

Quarter Ended                                                High        Low
--------------------------------------------------------------------------------
June 30, 2001....................................          $69.00     $  59.00
September 30, 2001...............................           68.20        60.25
December 31, 2001...............................            67.19        57.35
March 31, 2002...................................           69.01        63.28



Dividends

   The payment dates and amounts of cash dividends per share since April 1, 2000
are as follows:

Payment Date                                                       Cash Dividend
--------------------------------------------------------------------------------
May 31, 2000..............................................             $0.20
November 30, 2000.........................................              0.40
May 31, 2001..............................................              0.20
November 30, 2001.........................................              0.40
May 31, 2002..............................................              0.20


     The  amounts  and timing of cash  dividend  payments  have  generally  been
dictated by requirements of the Internal Revenue Code regarding the distribution
of taxable net  investment  income  (ordinary  income) of  regulated  investment
companies.   Instead  of  distributing   realized  long-term  capital  gains  to
shareholders,  the Company has  ordinarily  elected to retain such gains to fund
future investments.

Automatic Dividend Reinvestment and Optional Cash Contribution Plan

     As a service to its shareholders,  the Company offers an Automatic Dividend
Reinvestment and Optional Cash  Contribution Plan for shareholders of record who
own a minimum of 25 shares.  The Company pays all costs of administration of the
Plan except brokerage  transaction  fees. Upon request,  shareholders may obtain
information on the Plan from the Company, 12900 Preston Road, Suite 700, Dallas,
Texas 75230. Telephone (972) 233-8242.  Questions and answers about the Plan are
on the next page.

Annual Meeting

     The Annual Meeting of Shareholders of Capital Southwest Corporation will be
held on Monday,  July 15,  2002,  at 10:00 a.m.  in the North  Dallas Bank Tower
Meeting Room (first floor), 12900 Preston Road, Dallas, Texas.


</TEXT>
</DOCUMENT>
